NEW YORK, Sept 28 (Reuters) - The U.S. dollar rose on Friday as the euro fell on deepening worries about an Italian budget with a higher-than-expected deficit target, which also slammed European stocks.

Wall Street ended flat, pulling back from early gains after Facebook disclosed a security breach. Tesla shares lost 13.9 percent after U.S. regulators sued Chief Executive Officer Elon Musk in a fraud complaint that seeks to remove him as CEO.

In Italy, the government on Thursday targeted a budget deficit of 2.4 percent of gross domestic product for the next three years, marking a victory for party chiefs over Economy Minister Giovanni Tria, an unaffiliated technocrat.

Although the deficit is within the prescribed EU limit of 3 percent of GDP, investors fear that Italy's anti-establishment government is not committed to tackling its huge debt load. Italy's debt-to-GDP ratio stands at about 130 percent, the second highest in the euro zone, behind Greece.

The pan-European FTSEurofirst 300 index lost 0.83 percent. Shares in Italian banks fell as much as 8.5 percent and closed 7.26 percent lower.

Italian government bonds were set for their worst day since a brutal May 29 sell-off, up 34-42 basis points across the curve.

Wall Street in the morning rose, as the tech sector got a boost from gains in Nvidia Corp after Evercore raised the chipmaker's share price target to $400.

The Dow Jones Industrial Average rose 18.38 points, or 0.07 percent, to 26,458.31, the S&P 500 lost 0.02 point, or -0.00 percent, to 2,913.98 and the Nasdaq Composite added 4.39 points, or 0.05 percent, to 8,046.35.

Despite the flat close, the S&P 500 posted its best quarterly performance since the fourth quarter of 2013.

KING DOLLAR REIGNS

The dollar index rose 0.25 percent.

"The U.S. dollar remains a metaphorical rock in a sea of troubles," said Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto.

"The growth outlook for other Group of 10 countries and the emerging markets remains uncertain, and increased confidence in the forces compelling the Federal Reserve to hike rates next year is helping to lift the U.S. dollar against its counterparts," he added.

After the Federal Reserve raised interest rates on Wednesday - its third increase this year - Fed Chair Jerome Powell said that the United States does not face a large chance of a recession in the next two years and the central bank plans to keep raising rates gradually.

Benchmark 10-year notes last fell 2/32 in price to yield 3.063 percent, from 3.055 percent late on Thursday.

"We are seeing safety trade due to the Italian crisis, people are coming in and buying U.S. paper and the dollar," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

Energy stocks got a boost from oil prices, with Brent crude climbing to a four-year high as U.S. sanctions on Tehran squeezed Iranian crude exports.

U.S. crude rose 1.97 percent to $73.54 per barrel and Brent was last at $82.95, up 1.93 percent on the day.

Reporting by Hilary Russ
Additional reporting by Ritvik Carvalho in London, Noel
Randewich in San Francisco and Gertrude Chavez-Dreyfuss and
Stephanie Kelly in New York
Editing by Leslie Adler
Editing by Nick Zieminski